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© 2016 Association of Certified Fraud Examiners, Inc.

Investigation

Sources of Information

© 2016 Association of Certified Fraud Examiners, Inc. 2 of 27

Internal vs. External

Internal sources—may be all that’s available

(accounting and business tax records, copies

of canceled checks, employee personnel

files)

External sources—crucial for locating assets;

locating people; determining ownership of

assets and businesses


Public vs. Nonpublic

Public records can be accessed by the

public. They are documents a governmental

agency is required to keep by law.

Nonpublic records include information about

a person or business considered to be

private and confidential. Must obtain by:

Consent

Legal process

Search warrant


Freedom of Information Act (FOIA)

The FOIA is the primary Act that governs the

availability of governmental records to the

general public.

The FOIA provides for public access to the

following information:

• Tax rolls

• Voter registration (with some restrictions)

• Assumed names

• Real property records

• Divorce/probate suits


Fair Credit Reporting Act (FCRA)

Regulates dissemination of consumer

information to third parties by consumer

reporting agencies

An employer who uses a third party to conduct a

workplace investigation no longer has to obtain

the prior consent of an employee if the

investigation involves suspected:

• Misconduct

• Violation of law or regulations

• Violation of any preexisting policy of the employer


Other Laws

Gramm-Leach-Bliley Act

• Criminalizes pretexting to obtain financial information

Privacy Act of 1974

• Regulates information maintained by federal agencies

Right to Financial Privacy Act

• Prohibits financial institutions from disclosing financial

information about individual customers to government

agencies without consent or legal order

HIPAA

• Protects health information


Local Records

Building Inspector Records

Building Permits

Health and Fire Department

Voter Registration

Utility Records


Court Records

State, local, federal

Criminal conviction

records are generally

available to the public

Court clerks maintain

files


Court Records

Civil court records

• Personal injury suits

• Financial suits

• Divorce records

Criminal court records

Probate court records (debts, dispersal of

assets)

Federal court records

• Civil and criminal

• Bankruptcy


Property Records

Real property records

• Sale price(s)

• Residences and addresses of the buyer and seller

• Party financing the property (if applicable)

Property tax records

Tax assessor/collector records

Estimated value

Names of former owners


Corporate Records

• Articles of Incorporation

• Corporate name

• Ownership information

• Nominal stock value

• Names of initial shareholders

• Directors and officers

• Registered agent

• Principal office location

• Date of incorporation

• Standing/status


Corporate Records

• Foreign corporations

• Fictitious Business

Names

• DBA (Doing Business

As)

• Uniform Commercial

Code (UCC)

• Debtor name/address

• Financial lender

• Collateral pledged


Federal (National-Level) Records

Inspectors General

National Futures Association

Securities and Exchange Commission (SEC)

• Financial statements

• Identification of officers and directors

• Identification of owners of more than 10% of stock

• Annual Report (Form 10-K)


Nonpublic Records

Types of records:

• Banking records

• Tax records

• Credit records

• Phone records

• Credit card account records

• Personal health care records


Nonpublic Records

Request the records

• Vendors

• Customers

• Subject

Subpoena or legal process

• Typically available only if civil or criminal action

has been filed

• Only available to government in criminal case

Condition of business

Right to audit clause


Search Engines

Boolean operators are symbols that help the search

engine understand what the user is looking for.

Google operators

• AND between two words returns pages containing both

terms: check AND fraud

• Placing quotes around a word or set of words will return

pages containing the exact word or words: “insider trading”

• Using intitle:term(s): [intitle:mortgage fraud] will return

documents with only mortgage and fraud in the title

Use more than one

Use unique, specific keywords; no articles

Use filters to focus searches


Limitations of Public Database Searches

Information must be checked for accuracy

Varies widely from jurisdiction to jurisdiction

Searches are limited in the area they cover

Brief abstracts of original record

Information compiled in a vendor’s database

must be reliable


Other Web Tools

Deep Web: aka Invisible Web

• Content not indexed by standard search engines

Internet archives

• Archived versions of pages no longer online

Social media

• Be aware of privacy concerns

• Must be authenticated so it is usable in court


Locating People

Three principles to adhere to when locating

people using online records:

1. Obtain a past address of the suspect.

2. Keep in mind the cost effectiveness of the

search activity.

3. Know the most powerful and useful types

of searches.


Common Types of Searches

Credit bureau header searches (Note: These

are among the most powerful people-locator

tools, if available)

Current occupant/new address

Last name

Bankruptcy, tax liens, and judgments

Voter registration

Business filings


Sample Prep Question

1. Under the U.S. Fair Credit Reporting Act,

consumer reports cannot be obtained on

anyone under any circumstances without their

consent.

A. True

B. False


Correct Answer: B

The Fair and Accurate Credit Transactions Act of

2003 amended the Fair Credit Reporting Act

(FCRA) to exempt certain reports involving

employee misconduct investigations. As a result

of these amendments, an employer who uses a

third party to conduct a workplace investigation

no longer has to obtain the prior consent of an

employee if the investigation involves suspected:

• Misconduct

• Violation of law or regulations

• Violation of any preexisting policy of the employer



2. If a fraud examiner was gathering information

about a fraud suspect, which of the following

types of information would likely require access

to nonpublic sources of information to obtain?

A. The subject’s habits and lifestyle

B. Where the subject currently resides

C. The subject’s home phone records

D. All of the above


Correct Answer: C

Nonpublic records include information about a

person or business considered to be private and

confidential. Unlike public records, nonpublic

records are not available to the public. Thus,

obtaining access to them might be difficult or

impossible. Some of the most valuable types of

nonpublic records include:

• Banking records

• Tax records

• Credit records of individuals

• Phone records

• Credit card account records

• Personal health care records



3. Which of the following pieces of information about

financed personal property can be obtained through

a Uniform Commercial Code (UCC) filings search?

A. The name of the debtor or joint debtors

B. The name of the financial lender

C. The type of collateral pledged as security

D. All of the above


Correct Answer: D

A search of Uniform Commercial Code (UCC)

filings can help fraud examiners identify

personal property that an individual or business

has financed. These filings identify:

• Name of the debtor or joint debtors

• Current address of the debtor

• Name of the financial lender

• Type of collateral pledged as security

• Date of filing and continuations



4. Freddie calls Alex’s bank, claiming to be Alex. Freddie

tells the bank representative that he needs to make sure

the bank has the correct government identification

number on his account because he had noticed an error

on his statement. The bank representative refuses to give

the number, and Freddie hangs up. Assuming Freddie

resides in the United States, which of the following

crimes did he commit?

A. False statements to a phone operator

B. Pretexting with a financial institution

C. Defalcation

D. Fraud in the inducement


Correct Answer: B

Broadly defined, pretexting is the act of impersonating someone else or making false or misleading statements to obtain, sell, or buy information about a person or organization. Under the broad definition, pretexting for nonfraudulent purposes is not always illegal, but it should be used with caution. However, in the United States, the Gramm-Leach-Bliley Act made it a criminal offense to engage in pretexting with financial institutions. In this context, pretexting is the act of obtaining customer information from financial institutions through the use of deceptive tactics.


Investigation

Covert Examinations


Covert Examinations

A covert examination or operation is designed

to obtain evidence by use of agents whose

true role is undisclosed to the target.

Two forms:

1. Undercover

2. Surveillance

Basis for the operation should be in writing:

• Information upon which the operation is based

• Information that is expected to be gained

• Identities of suspects, if known

• Operatives under the fraud examiner’s care,

custody, or control


Problems

Costly and risky

Laws govern recording of conversations –

“reasonable expectation of privacy”

Generally not a crime to record video in a

public place

Entrapment occurs when law enforcement

officers or government agents induce a

person to commit a crime that he is not

previously disposed to commit

Must be properly predicated; must not be

used for “fishing expeditions”


Legal Considerations

If you pay an informant or source, must get a

receipt

Reporting contacts (code name or number only)

Promises of confidentiality (qualified or

conditional only), no guarantees



1. In preparing a memorandum of information

furnished by a confidential source, how should

the source usually be identified on paper?

A. By name

B. By a code name or symbol

C. Confidential source information should never

be included in a report

D. None of the above


Correct Answer: B

In preparing a memorandum of information

furnished by a confidential source, it is necessary

to use a code name, number, or symbol when

referring to the source in order to protect the

source’s identity.



2. Chris, a private investigator in the United

States, is conducting a covert investigation and

wants to secretly record a suspect’s activities

on a particular street corner. Which of the

following would most likely be an improper

method of doing so?



A. Taking photographs of the suspect’s activities

from a vehicle parked across from the corner

B. Placing a hidden microphone to record the

suspect’s conversations

C. Hiding a camera that records video of the

suspect but not his conversations

D. Using a camera phone to take pictures of the

suspect’s activities while walking by


Correct Answer: B

In most U.S. states, making an audio recording of private

conversations to which one is not a party is illegal unless

the recording party has obtained the consent of those

involved in the conversation. Whether a conversation is

private depends on whether the parties have a

“reasonable expectation of privacy” in the given

circumstances.

Photographing or recording video of someone in a public

place is legal, provided that the person being

photographed or recorded does not have a reasonable

expectation of privacy in such a place. However, such a

recording is subject to all of the laws and rules regarding

recording audio conversations if the video records any

part of a conversation.


Investigation

Analyzing Documents


Analyzing Documents

Obtain original documents where feasible.

Make working copies for review, and keep

the originals segregated.

Do not touch originals any more than

necessary; they might later have to undergo

forensic analysis.

Maintain a dependable filing system for the

documents.


Obtaining Documentary Evidence

Consent

Subpoena or court order

Bank records require written consent or

subpoena

Organization

• Segregate

• Key document file

• Establish a database


Chain of Custody

What items were

received

When they were

received

From whom they were

received

Where they are

maintained


Handling Documents as

Physical Evidence

Be alert for anachronisms.

Preserve for fingerprint examinations.

Never attempt to develop indented writings by

shading or scratching on the surface of the

sheet of paper with a pencil.

View indented writings using oblique-lighting

method.



1. Which of the following is NOT recommended

when collecting physical documents?

A. Take the original document if it is available.

B. Try to handle the original as little as possible.

C. Maintain a dependable filing system for the

documents.

D. Sign your name at the bottom of each page.


Correct Answer: D

The following are general rules regarding the

collection of documents:

• Obtain original documents where feasible.

• Do not touch originals any more than necessary.

• Maintain a dependable filing system for the

documents.



2. An indented writing can best be developed by

shading or scratching with a pencil.

A. True

B. False


Correct Answer: B

Fraud examiners should never attempt to develop

indented writings by shading or scratching on the

surface of a sheet of paper with a pencil.

Although this method will reveal deep

indentations, it will not reveal faint indentations

and will prevent expert examinations from

analyzing them. Moreover, shading or scratching

with a pencil might prevent other types of

technical examinations.



3. Black, a Certified Fraud Examiner, has

obtained an oral confession from Green, a

fraud suspect. Black wants to examine

Green’s bank accounts. Which of the following

would be the LEAST effective way to obtain

permission to examine Green’s bank records?



A. Obtain a subpoena.

B. Obtain Green’s written consent.

C. Obtain Green’s oral consent.

D. Obtain a court order.


Correct Answer: C

Certain types of records can be obtained by

consent only if the subject of the records

consents in writing. Accessing a subject’s bank

records from financial institutions, for instance,

generally requires written consent. If no consent

is given and evidence is held by other parties or

in uncontrolled locations, specific legal action

might be required. Most often, the legal process

used takes the form of a subpoena or other court

order to produce the documents and records

(including electronic records).

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